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Introduction

An exemption from tax can apply to termination payments where the employee worked all or part of the employment period overseas (which the legislation terms ‘foreign service’, see the definition below).

Where an employee has worked overseas and that employee receives a termination payment that falls within ITEPA 2003, ss 401–416, the termination payment may be:

1. •

   fully exempt from UK tax, or

2. •

   partially exempt from UK tax

It is a common mistake for employers and advisers to assume that a termination payment from a UK employment is not taxable on the employee if it is received whilst the employee is not UK resident.